The Spirit of Franco-German Cooperation

By Geoffrey T. Smith

The Franco-German partnership may not be the motor it once was for European integration, but whisper it softly when German Finance Minister Wolfgang Schäuble is around.

Mr. Schäuble and his French counterpart, Pierre Moscovici, turned back the clock Tuesday with a joint press conference in an attempted show of unity on the big issues of the day. Perhaps fortunately, perhaps by design, they chose to hold the press conference before they had had the chance to irritate and frustrate each other in discussing Europe’s new plans for a single mechanism for bank supervision at the European Central Bank. Germany is fighting to spare its local and cooperative banks any more new regulatory burdens, while France is pressing the case that a single supervisor really does have to have direct power over even small banks. The two also disagree over the risk that the initiative poses to the ECB’s governing council, which Germany insists needs to remain exclusively focused on keeping inflation down.

As such, the press conference revolved mostly around Greece, where the two did a better job of singing from the same sheet than did Eurogroup head Jean-Claude Juncker and International Monetary Fund Managing Director Christine Lagarde the previous evening after four hours of evidently fractious talks.

But it was when the talk turned to France, and its struggle with its loss of international competitiveness, that Mr. Moscovici really found out what a friend he had. Mr. Schäuble positively leapt down the throat of a French journalist who wondered whether France may be the latest country to claim the title–hotly contested since 2010–of “The Sick Man of Europe.”

“No! That question must not remain unanswered even for a second!” he barked across the room (the French minister remaining impressively calm as his right ear took the brunt of the blast), before launching into one of his characteristically fluent and oddly inspiring rhapsodies on the spirit of Franco-German cooperation–a skill in which Mr. Schäuble has had no rivals since the retirement of Jean-Claude Trichet from the presidency of the ECB.

But Mr. Moscovici should have known that nobody gets support from Berlin without conditions attached these days, and today was no different. Mr. Schäuble was impeccably diplomatic, but the message in what followed was clear. Germany had had to struggle to regain competitiveness, and so must everyone else.

“If we don’t all make huge efforts to keep our competitiveness and improve our productivity,” Mr. Schaeuble said, warming to his theme, ”In the context of our demographic development, our greater sensitivity to the enormous developments in the environment and modern technology, our [insistence on] higher social standards and benefits, then we–all of us Europeans together–will become irrelevant in this world of globalization.”

Or in other words, the Zeitgeist doesn’t recognize l’exception Française. François Hollande, take note.

Comments (1 of 1)

No doubt Germany refuses to recognize an exception for France, yet it exists none the less. When Germany reformed its labour market and improved its competitiveness in the 90s, it was dealing with a population with low inflation expectations and cooperative labour unions.

One of the problems France, and the rest of the peripherals have today is that they are using a low inflation currency, but they have not yet made a complete psychological adjustment to their own inflation expectations, leading to labour unions being more aggressive in the wage settlements they demand and employers more willing to accede to them, in the period 1999-2008.

So the situations of France today and Germany a decade and a half ago really are different. Germany had to keep wage settlements flat, and had a labour force that saw the point of that. France and the rest of the peripherals have to undo excessive wage settlements already entered into, and so have to manage falls in living standards for labour forces that will certainly object that they, rather than capital, are taking the biggest share of the pain of re-adjustment.